Moody’s Investors Service said it may join Standard & Poor’s in downgrading the U.S.’s credit rating unless Congress reduces the percentage of debt-to-gross-domestic product during budget negotiations next year.
The U.S. economy will probably tip into recession next year if lawmakers and President Barack Obama can’t break an impasse over the federal budget and if the George W. Bush-era tax cuts expire in what’s become known as the “fiscal cliff,” according to a report by the nonpartisan Congressional Budget Office published on Aug. 22. The rating would likely be cut to Aa1 from Aaa if an agreement isn’t reached, Moody’s said in a statement.
The U.S.’s Aaa rating with negative outlook would only be extended beyond 2013 if a “‘fiscal cliff’ actually materialized,” Moody’s said today in the statement. “Moody’s would then need evidence that the economy could rebound from the shock before it would consider returning to a stable outlook.”